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hipmatt
ParticipantReally, housing only averages the same rate of return as inflation. Of coarse there are bubbles, and busts, but over the long haul, housing will usually “cost” a relatively fixed percentage of what the average household/individual makes. This percentage will fluctuate from time to time, but it is just one of many things that most people (people who live in housing that has monetary value) have to spend money on. This is how it has been for years, and how it will be for years.
There are other things in life that are just as mandatory for survival as owning or renting a home. For those of us that eat or drive, food and gas/energy will take up a certain percentage of our incomes. Health care, consumer staple products, clothing, education, cars/transportation, furniture, and more or less are all costs that most people in life will eventually have to spend money on, just as they do housing or food. Together they all add up to the cost of living. The change or increase in the cost of living is known as inflation. The cost of living will usually go up over time, usually in tandem with incomes.
It would be rare for the cost of housing to remain at such a relatively high ratio to incomes, with the exception of a bubble. This is the current situation that we face. There are so many reasons why we are in this huge deflating housing bubble, and I won’t rehash these, but they are in many other threads here. Bubbles deflate, and usually they over correct. There is virtually no chance that housing prices will stay “this high”. There are only a few ways this could feasibly happen.
A. The lower and middle class of America (think retail, education, service sector, police, fire, blue collar, some sales) gets huge increases in their wages to allow them to afford the current high prices. – this is not happening, most of the rise in incomes is seen in the upper class.
B. The cost of everything else drops and allows us to spend more money on housing. – this is not happening either, food, gas, energy, health care, even consumer staples are on the rise. Virtually nothing is getting cheaper except some tech items. Non-housing costs are rising fast, especially after the massive credit/housing boom, and they will rise further if rates are cut.
C. All of a sudden the supply of homes, land or supplies to build them was running out. We all know the current situation with resale and new home inventory.. it is at record levels and not dropping. There is still plenty of land to build on from Las Vegas to Phoenix to Seattle to Dallas. Inventory, construction supplies, and land are and will be readily available for years and years in this country.
Bottom line is that housing is and will come down in price significantly.
ParticipantReally, housing only averages the same rate of return as inflation. Of coarse there are bubbles, and busts, but over the long haul, housing will usually “cost” a relatively fixed percentage of what the average household/individual makes. This percentage will fluctuate from time to time, but it is just one of many things that most people (people who live in housing that has monetary value) have to spend money on. This is how it has been for years, and how it will be for years.
There are other things in life that are just as mandatory for survival as owning or renting a home. For those of us that eat or drive, food and gas/energy will take up a certain percentage of our incomes. Health care, consumer staple products, clothing, education, cars/transportation, furniture, and more or less are all costs that most people in life will eventually have to spend money on, just as they do housing or food. Together they all add up to the cost of living. The change or increase in the cost of living is known as inflation. The cost of living will usually go up over time, usually in tandem with incomes.
It would be rare for the cost of housing to remain at such a relatively high ratio to incomes, with the exception of a bubble. This is the current situation that we face. There are so many reasons why we are in this huge deflating housing bubble, and I won’t rehash these, but they are in many other threads here. Bubbles deflate, and usually they over correct. There is virtually no chance that housing prices will stay “this high”. There are only a few ways this could feasibly happen.
A. The lower and middle class of America (think retail, education, service sector, police, fire, blue collar, some sales) gets huge increases in their wages to allow them to afford the current high prices. – this is not happening, most of the rise in incomes is seen in the upper class.
B. The cost of everything else drops and allows us to spend more money on housing. – this is not happening either, food, gas, energy, health care, even consumer staples are on the rise. Virtually nothing is getting cheaper except some tech items. Non-housing costs are rising fast, especially after the massive credit/housing boom, and they will rise further if rates are cut.
C. All of a sudden the supply of homes, land or supplies to build them was running out. We all know the current situation with resale and new home inventory.. it is at record levels and not dropping. There is still plenty of land to build on from Las Vegas to Phoenix to Seattle to Dallas. Inventory, construction supplies, and land are and will be readily available for years and years in this country.
Bottom line is that housing is and will come down in price significantly.
Participantlike lowe’s is hiring now anyways……
most likely, they will eventually walk away from the home, as many others will too.Participantlike lowe’s is hiring now anyways……
most likely, they will eventually walk away from the home, as many others will too.ParticipantI usually don’t like Cramer, but I have to say that he hit this interview 99% dead on correct, except the part where he states that if the fed lowered rates again, the market would go back up.
I think lowering rates would have little effect on housing if any, and a huge negative effect on the US dollar as well as worsen the already high inflation. The consequences of this will be much worse. All we would be doing is giving an addict one last hit of crack, before sending them into the painful detox stage, but the more drugs taken, the harder the detox.
ParticipantI usually don’t like Cramer, but I have to say that he hit this interview 99% dead on correct, except the part where he states that if the fed lowered rates again, the market would go back up.
I think lowering rates would have little effect on housing if any, and a huge negative effect on the US dollar as well as worsen the already high inflation. The consequences of this will be much worse. All we would be doing is giving an addict one last hit of crack, before sending them into the painful detox stage, but the more drugs taken, the harder the detox.
ParticipantYes we have had this conversation many times…
if history is any indication, and this was an average housing boom, then 2010-2012 (usually 5-6 years of price declines) would be the bottom, however, this has been the mother of all housing booms, so it is possible that this one takes even longer to return to fundamentally sane pricing.This is what we are comparing housing costs to anyway… rents, incomes, and to a lesser degree, home prices in other parts of the country.
We are still looking at absurdly high home prices, even though they may have come down 10-15% in some areas. We are still seeing shady loans being funded, we still have relatively very loose credit, we still have historically low interest rates, and we still have very low unemployment. Once lending standards really come back, and we start the clean up from the 8 year credit party. (hasn’t happened yet). Chances are good that rates may rise as well.
Inventory is sky high, and for every home that is for sale or a foreclosure, you have two or three more that either are “planning to list as soon as the market gets better” or are on the verge of foreclosure themselves. Speculators are gone for a long while and in a few years, people will need more than a pulse to buy a home. Also, I don’t think it really started until late 2006. How many price reductions happened in 05-06??? Most discounts started in late 06 or early 07.
There is no way that in 18 months this will be at the bottom. There are still many loans resetting and many overwhelming economic forces going against home prices making a comeback. Its hard to say how long, but I say 2011 will be close enough to the bottom to buy.
You may want to revisit Rich’s Chart(linked below)if you think that this will only take 2 years to correct, or to remind yourself of how long the previous RE “corrections” lasted for. I’m not saying it will take 12 years, but not 2 or 3.
ParticipantYes we have had this conversation many times…
if history is any indication, and this was an average housing boom, then 2010-2012 (usually 5-6 years of price declines) would be the bottom, however, this has been the mother of all housing booms, so it is possible that this one takes even longer to return to fundamentally sane pricing.This is what we are comparing housing costs to anyway… rents, incomes, and to a lesser degree, home prices in other parts of the country.
We are still looking at absurdly high home prices, even though they may have come down 10-15% in some areas. We are still seeing shady loans being funded, we still have relatively very loose credit, we still have historically low interest rates, and we still have very low unemployment. Once lending standards really come back, and we start the clean up from the 8 year credit party. (hasn’t happened yet). Chances are good that rates may rise as well.
Inventory is sky high, and for every home that is for sale or a foreclosure, you have two or three more that either are “planning to list as soon as the market gets better” or are on the verge of foreclosure themselves. Speculators are gone for a long while and in a few years, people will need more than a pulse to buy a home. Also, I don’t think it really started until late 2006. How many price reductions happened in 05-06??? Most discounts started in late 06 or early 07.
There is no way that in 18 months this will be at the bottom. There are still many loans resetting and many overwhelming economic forces going against home prices making a comeback. Its hard to say how long, but I say 2011 will be close enough to the bottom to buy.
You may want to revisit Rich’s Chart(linked below)if you think that this will only take 2 years to correct, or to remind yourself of how long the previous RE “corrections” lasted for. I’m not saying it will take 12 years, but not 2 or 3.
ParticipantFormer owner pretty much covered it all… absolutely no reason to buy there right now.
ParticipantFormer owner pretty much covered it all… absolutely no reason to buy there right now.
ParticipantThis is a good point Alex. There are many reasons to blame for this insane market, but subprime is the scapegoat that’s taking the blunt of it. I was thinking the same things as I continually watch the media blame subprime for all of the housing markets woes. Most of the problems were created from a lack of lending standards. The standards have been eliminated across the board. There were many people using “creative” financing and it wasn’t considered subprime.
Whats funny, is it is still going on today. Last weekend while perusing threw the Press Enterprise, I noticed 3 large homebuilders that had either creative financing or “sample payments” on their particular developments. All the examples were based on 100% financing, and most included teaser rates, some are still promoting interest only. This was on Lennar’s 2 page spread. They are also still doing stated income on loans as well. Housing will slowly come down, but if there was a mandatory 20% cash down for buying homes again…. you would have at least 50% off of all homes within 6 months.
Some of the other factors:
-A really low fed funds rate for 5 years.
-The popularity of 100% financing and interest only(not always subprime) loans.
-Rampant speculation.
-Fear of getting priced out of the market.
-“I wanna make $100s of $Ks on my home too”
-Sheer stupidity.
-HELOCing to death to either stay afloat, or keep up with Jonses because housing never goes down.ParticipantThis is a good point Alex. There are many reasons to blame for this insane market, but subprime is the scapegoat that’s taking the blunt of it. I was thinking the same things as I continually watch the media blame subprime for all of the housing markets woes. Most of the problems were created from a lack of lending standards. The standards have been eliminated across the board. There were many people using “creative” financing and it wasn’t considered subprime.
Whats funny, is it is still going on today. Last weekend while perusing threw the Press Enterprise, I noticed 3 large homebuilders that had either creative financing or “sample payments” on their particular developments. All the examples were based on 100% financing, and most included teaser rates, some are still promoting interest only. This was on Lennar’s 2 page spread. They are also still doing stated income on loans as well. Housing will slowly come down, but if there was a mandatory 20% cash down for buying homes again…. you would have at least 50% off of all homes within 6 months.
Some of the other factors:
-A really low fed funds rate for 5 years.
-The popularity of 100% financing and interest only(not always subprime) loans.
-Rampant speculation.
-Fear of getting priced out of the market.
-“I wanna make $100s of $Ks on my home too”
-Sheer stupidity.
-HELOCing to death to either stay afloat, or keep up with Jonses because housing never goes down.ParticipantPrices are moving down slowly in Harveston.. just like everywhere else inventory is high, and most sellers remain stubbornly attached to stratospheric prices.
ParticipantPrices are moving down slowly in Harveston.. just like everywhere else inventory is high, and most sellers remain stubbornly attached to stratospheric prices.
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